Major Issues in Microfinance - Essay Example

?Microfinance Introduction Microfinance is the term that extends provision of a broad expanse of financial services to low-income households and verysmall enterprises. The financial services offered by organizations offering microfinance programs include savings that are voluntary in nature and loan assistance. Products such as insurance, money transfers and leasing are likewise offered. The basic thrust of microfinance organizations is to offer financial assistance to the marginalized poor. The term was distinctly differentiated from microcredit. The term microcredit manifests financial services to clients categorized as those belonging to the low income group in the form of small loans. The purpose of the loans could be for activities that generate income and to establish microenterprises. The delimiting factor for microcredit is its focus mainly on the creation of credit without regard for alleviating poverty and assistance to improve the plight of the poor. The service offered from microcredit puts clients from the low income group to be more apprehensive in availing of this option due to lack of sources for repayment and perceived risk in debt. Having identified the evolution of microcredit programs from the early 1970s, their success have resulted in increased schemes until the mid 1990s. Providers of this type of credit have offered this particular financial assistance concurrent with development agencies with the strategy of alleviating poverty for the marginalized poor. Eventually, large organizations in Bangladesh that offered microfinance schemes were recognized internationally and provided the impetus for the first international summit to be organized and globally presented. Advantage of Microfinance In a discourse written by Remenyi that necessitated the review of thirty independent studies from diverse institutions offering microfinance programs, a significant increase averaging 20% in borrowers’ income was reflected.3 Likewise, the author indicated that the presence of common variables that influence the borrowers’ ability to improve their income, to wit: taking into account their target market, the level of skills, gender, marital status, and available support from external sources. In a related research, there has been a reported positive impact on security perceived by borrowers when there is ongoing access to loans. The experience from Grameen Bank indicates that borrowers who continued to avail of microfinance credit eventually achieved sustainability in food and assets such as livestock and rickshaws. An improvement in economic status of the borrowers was tantamount to an overall improvement in living conditions and the ability to purchase real properties. Thereby, successful microfinance borrowers were proven to have gained substantial security that prevented them to liquidate assets in times of emergencies and disasters. 4 Likewise, amongst successful borrower households in several countries, expanding employment opportunities and increasing hours of employment per week have also been noted. Accordingly, some of the social changes in Grameen Bank villages impact positively on the community as a whole, particularly the increased visibility and mobility of women. One study found that a significant change in household and community status could be derived by women who maintained control of their loans. There were evidences that indicate women manifesting direct correlation between having money and increased status and recognition. There were trends towards resourceful women who learn to use the loans “to empower themselves”.5 However, some studies reveal that “…It cannot be assumed that disbursing loans to women means either that they use them or are empowered.” 6 Disadvantage of Microfinance In many countries, diverse studies show that targeting women in microfinance schemes is a direct challenge to cultural norms. Without parallel programmes which address gender issues, this has resulted in increased intra- and inter-household tension. There had been reported cases of domestic violence against female, especially those identified to be Grameen Bank loan recipients. Violence were manifested by husbands and male relatives and several people have been reported to have committed suicide as a result of group pressure for repayment.7 It is likewise crucial to closely evaluate the impact of women spending more time in paid employment. In these cases, issues involving having to do most of the housework and childcare should be addressed. Kabeer suggests there is mixed evidence of gender impacts. The author averred that while women getting loans are more likely to have girl children in school than male loan recipients, there is greater susceptibilities girl children to be withdrawn from school to meet increasing labour demands from loan utilization activities.8 Further, reports show evidence of husbands or other male relatives demanding financial control of the loans granted to women.9 In these instances, women have been regarded as mere debt collectors and borrowers’ economic condition were not eminently improved. Another study acknowledged that out of a total of 7 women from 10 who were not able to manage and control their debts remain to be in dire poverty.10 In addition, another study there have been proofs to attest that the larger the loan, the greater the possibility that it was men who manifested control.11 In terms of loan renewals, microfinance borrowers who have renewed their loans for the 8th to 10th times have been tapping other sources for debt repayment. The symptoms of impending problems associated with repayment stem from the irregularity of payment records and lower percentage repayment rates in the higher loan cycles, indicating that recipients have difficulties managing these loans.12 A related research conducted by Hashemi found that those not joining the Grameen Bank were primarily concerned with the following concerns, to wit: the debt burden (49%), religious and social sanctions (25%), and fear of non-acceptance because others considered them a high risk (13%). 13 Conclusion The essay has thereby identified that financial organizations who offer financial services, specifically credit, should evaluate closely the ability of people to manage, control and repay them. The microcredit facility is deemed appropriate for borrowers with current small scale businesses where opportunities have been identified with steady cash flow to sustain the loan repayments. Microfinance institutions are beneficial for providing ways and means to alleviate poverty through enjoining borrowers to maintain a professional stance, to be accountable and responsible for debt repayments when they fall due. The experience of microfinance in Bangladesh manifests a vision of success in improving the lives of the marginalized poor. Credit obtained from microfinance should be earmarked, though, in livelihood programs and other income generating small businesses that would ensure that the poor would look forward to a brighter future. References 1. 2. > 3. > 4. > 5. > 6. > 7. > 8. > 9. . 10. > 11. . 12. . Read More